Eureka Report

The ATO raises the TBAR on pension reporting

The move is on for SMSFs to report in real-time on pension drawdowns

Summary: If you own an SMSF and are in pension mode, take note: the Tax Office is watching. Real-time reporting of pension drawdowns and commutations is coming. Here's what you need to start thinking about.

Key take-out: The experts are saying best practice will be to have a document explaining how you will manage what happens after your minimum pension drawdown is taken.

TBAR sounds like something your kids (or grandkids) might play with in the school yard, but it isn't. It stands for transfer balance account report, and anyone with a self-managed super fund pension is going to have to know and understand it.

The constant reporting framework will be imperative, in light of the $1.6 million transfer balance cap (TBC), when reporting to the Australian Taxation Office.

As of 1 July 2017, pension funds are limited to starting with a balance of $1.6 million. (They can grow higher than that with good investing, but you'll be limited to starting with that balance.) If you have more than that in your super, you will have to leave the remainder in accumulation.

If you need to take more than the minimum pension from your account (minimums are based on your age, see Table 1), the remainder of any funds you require should be taken as a commutation. That is, as a lump sum, by way of commuting a portion of your benefits back to accumulation.


Table 1: Pension drawdown figures


Age of pension account-holder

Percentage factors


Under 65



65 to 74



75 to 79



80 to 84



85 to 89



90 to 94



Aged 95 or older



The reason for taking the remainder as a commutation is that it will reduce your TBC. And the reason you might want your TBC reduced is in case you might be able to top up your pension later on.

For example, if you are 63 and have $1.6 million in your pension, you will be required to take $64,000 as a pension. However, if your income requirements are actually $164,000, then you will need to take another $100,000 from your super fund.

If you take that $100,000 as a pension, your TBC will remain unchanged at $1.6 million. If, however, you take that $100,000 as a commutation, then your TBC will reduce to $1.5 million ($1.6 million minus $100,000).

Why is this important? Because you have reduced your TBC by $100,000, you may be able to add another $100,000 to your pension fund later (perhaps from an inheritance, or the sale of other assets). And, if this is required for a number of years, you potentially open up the possibility of adding a lot more money back into pension funds down the track.

The ATO, however, wants what it calls “real-time reporting” of these commutations, as it fears it could be manipulated. And it doesn't want super funds, or trustees, being able to manipulate the data, at the end of the year.

So, if you take a commutation, real-time reporting means it wants to know virtually as soon as you do it.

TBAR is that system. It hasn't been fully worked out yet. But you can expect that it will be done fairly soon. And if you're drawing on your super fund, beyond the minimum, you will either want your accountant to be all over it, or you will need to be on top of it yourself.

These decisions also feed back into what I've described before as the “three pots” strategy.

Essentially, you put your $1.6 million into a pension fund. Then you have somewhere between $500,000 and $1 million in your personal name (generating just enough money to keep you under the limit for paying personal tax), and put as much as you can of the remainder back in superannuation accumulation. This should mean that the most tax you pay on anything is 15 per cent.

So, imagine that you've managed to get everything you own lined up properly, in that order. Then, when you're taking your retirement savings out to spend you take the minimum pension first, and then take excess money from super accumulation (which is taxed at 15 per cent). When your accumulation fund is drained, then you start to draw more from pension or outside.

If you have too many assets outside of super in your personal name, you draw your pension first, then spend down assets in your personal name until those assets are earning under the tax-free limit, which might be taxed at up to 45 per cent, plus Medicare. Then, when those are drawn, eat into your super accumulation before eating further into your pension fund.

What trustees can do

The experts are saying that best practice, or at least having the best explanation available for the ATO, will be to have a document that explains how you are going to manage what happens after the minimum pension drawdown is taken.

That will mean a document from the member that instructs the trustees to take the minimum pension and that anything after that will be taken as commutations until the new financial year.

That won't get people out of the real-time reporting requirements of TBAR, but if properly executed, will give the ATO an upfront, signed, indication of what your intentions were.



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